‘Big four’ set for assault on cloud market
Despite what you might read in the technology and business press, the so-called rush to the cloud is not, at present, much of a stampede, at all.
In fact, according to a report by Goldman Sachs (paywall), in 2017 spending on cloud services was only eight percent of the total potential market. But, it is worth noting, by 2021, around 15 percent of IT budgets will be going to the cloud, the quarterly report predicts.
“Our checks continue to suggest that we remain in the early innings of public cloud,” the report states. But the change from 8 to 15 percent will represent US$116 billion by 2021, winging its way to cloud platform providers – a serious chunk of IT budget.
And despite the market’s early days, it seems that there’s already some supplier consolidation going on; the ‘big four’ cloud suppliers— Google, Amazon, Alibaba, and Microsoft— are already gobbling up much of the market, and as time goes on, the pressure those players will exert will further squeeze out any competition, the report predicts.
In 2017, ‘the four’ accounted for around 56 percent of the core cloud computing market. By 2019, their combined share might take 84 percent, meaning the three US giants alone will account for a staggering 77 percent of the total market.
“The largest three players (AWS, Azure, Google), will continue to dominate share of the market,” the analysts said – Heather Bellini, Heath Terry, Piyush Mubayi, Caroline Liu, Mark Grant, and Ted Lin. “We continue to expect that the public cloud landscape will consolidate into an oligopolistic market structure.”
In the report, Goldman Sachs defines the so-called core cloud services as infrastructure as a service (IaaS), and platform as a service (PaaS). The latter typically comprises a virtualized operating system environment on which companies can run their applications. IaaS comprises offerings from companies like Amazon which sell computing processing power, payable on the basis of time used, or power consumed.
As well as a declining market share, the remaining competitors to the big four can also expect less revenue as their market is squeezed. According to the analysts, the smaller players accrued about US$21 billion for their cloud services last year, an amount that will decline to US$20 billion by EOY 2018, and is expected to spiral down rapidly to US$12 million in 2019.
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Although there is always room for niche players in a market dominated by a few massive competitors, perhaps the economies of scale achieved by the major cloud providers will hammer prices down for smaller companies, making even their low-overhead operations unviable in the medium to long-term.
Depending on how the cloud market develops, there may be some room for niche applications – GPU compute hosting for instance – but even household names attempting to get into cloud markets may suffer. Companies like Oracle and IBM, keen to reinvent themselves in the cloud age could find their offerings going to the wall alongside the start-ups, similarly priced out of the market.